No Smoke Without Fire: Cerberus Capital Swap-Betting

As
an insider in financing RadioShack’s troubled operations it has been alleged
that Cerberus Capital and others sold / wrote credit default swaps, which ensures
contingency payments on RadioShack debt for its buyers, in the event of a debt default event. RadioShack is currently in bankruptcy proceedings. And Cerberus et al of course didn't payout on the insurance which they deny having sold / wrote! It is insinuated
that RadioShack was allowed to survive until the expiry of the credit default
swaps written by the hedge funds, to the detriment of normal business strategy to
close some of its loss-making retail stores. Premise of lawsuit was that Cerberus
and others were engaging in exploitation of troubled companies for insider financial
trading profit at the expense of main street RadioShack and its stakeholders. Some
may say “wow!”, others succumbing to what-was-and-is say “so what?”FPM say about it in consternation astonishment
and bewilderment “What the deuce!”

No Smoke Without Fire: Cerberus Capital Insider Swap-Betting

For
exemplification of FPM Reputation Risk we have locked onto Stephen A.
Feinberg and his founded investment management Cerberus Capital
Management (Cerberus). He and his hybrid investment firm, capable of
private equity and hedge fund strategies such as distressed investments are represented today
in a Delaware bankruptcy court against allegations that it breached its
fiduciary duty[1]. The electrical retailer group, RadioShack Corporation
(now delisted from public exchange), is demised antagonist of its
financiers. The 76-year old electrical stores firm made a well publicized
Chapter 11 bankruptcy filing on 5th February 2015, evoking capital markets
corruption via “conflict of interest”. The collusive fiduciary conduct of
RadioShack’s distressed debt investors, namely Standard General, Salus Capital
Partners, Litespeed Management and FPM-targeted, Cerberus Capital Management,
is being questioned of hedge fund activism. Distressed investing and corporate
activist strategies of hedge funds are often as destructively controversial as
their nearby cousins the private equity buyout strategies.

1) RRGA:
Mr Feinberg joined Drexel Burnham Lambert, the brokerage investment bank, in
1982 after graduating from politics (while creditably a tennis captain at
college). Drexel filed for bankruptcy on February 13, 1990 after years of
Federal regulatory scrutiny and souring capital markets. Drexel are the infamously
storied innovators of ‘junk-bond’ offerings. Risky types of loan liability
because in bankruptcy the repayment priority is lower down in the capital
structure of the issuing company, often with a low credit rating. A loan investment
respectably referred to as leveraged loans and high yield bonds used by
corporate financiers. FPM’s ‘reputation and guilt by association’ presumption
of Mr Feinberg was flagged through our rogues gallery links with the Drexel. Drexel being the Madoff of its day by being
“too-good-to-be-true” fraudsters of the 1980s; clearly with caveat that not
all Drexel activities and deals were based on securities fraud.

2) SLW: Dennis B. Levine pleaded guilty to insider
trading while at Drexel in May 1986. In his wake he also brought down other notable
headline crooks of that era for insider trading, among other financial frauds.
Namely Ivan Boesky, Michael Milken and Martin A. Siegel. Mr Siegel was co-head
of Drexel's mergers and acquisitions department, and Mr Levine was an M&A specialist
in the office next door. This brief “Den of Thieves”[1] essential
‘history lesson’, so discouraged by senior bankers, of course puts Mr Feinberg
in the frame as an impressionable youngster in the exorbitant wealth creation yet
amid maelstrom of naughty illegality. His tenure at Drexel overlapped with Mr
Milken’s bond-desk stewardship exhibiting excessive capitalism of the 1980s. Mr
Milken’s prototype lending is attributed partly to causing the savings and
loans crisis and for the many business failures. Similarly, did Cerberus and the collective financier firms machinate RadioShack’s
bankruptcy proceeding? Countering distracting propaganda is a truer image of
vultures circling, then feeding off the carrion. This is akin to the bestial
nature conveyed of immoral corporate financiers / capitalists. As financial history
has tended to repeat itself, perhaps the financial class are steeped in madness,
expecting a different outcome in the stale relationship between bankers lending
and businesses borrowing.

4) Anecdotally,
we notice UK’s prominent right-wing U.K. Independence Party (UKIP) political leader Nigel Farage, as
having done a City of London tenure at Drexel Burnham Lambert between
1982 and 1986, after he left school to make money instead of choosing
university. His credentials as party of dissent and distraction is not our remit.

5) While we may dismiss some industries by
describing then as made of cliques cronies or of incestuous relationships the
Drexel diaspora has indeed become a behemoth of secret collective
conglomeration contentiously independent and seemingly in competition with each
other. However, we note from attendees at Milken Institute conferences and the extravagant
60th birthday party of billionaire Mr Black that their collective identity is
significant, and we don’t understate that cohesion by referring this club as
exhibiting cordial relationships. Since Martin Siegel was co-head of Drexel's M&A
department with Mr Black, it stands to reason that Mr Black might have known about
illegal activity. While Mr Black was subpoenaed with Mr Siegel at the time of
the investigation in 1986, the latter was never was charged. FPM believe this
omission of complete and full justice was due to resource-constrained priorities
of DoJ, such as pursuing Michael Milken as the big scalp.

6) The academic evidence of ‘corrupt capitalism
shenanigans’ via the Drexel Diaspora is astounding, while overwhelming FPM
research endeavours:

“Companies owned by
Apollo Global Management LLC and Cerberus Capital Management LP defaulted on
their debt more than those owned by 12 of the other largest private-equity
firms, according to Moody’s Investors Service.” Bloomberg via Newsmax
7/06/2014

...

[1] Den of
Thieves is a book by Wall St journalist and Pulitzer prize winner James B.
Stewart detailing the “Greed Decades” of the 1980s in investment banking.